Journalistic skepticism is rare when it comes to Shari'a banking. In January this blog highlighted an Associated Press puff piece on the subject, deeming it an early "contender for the most one-sided story of 2009." However, a new frontrunner has emerged: another Shari'a banking article.
Stephen Magagnini's March 30 piece in the Sacramento Bee presents Islamic finance as a panacea, a "socially responsible" way of doing business which has ensured that "the recession gripping the nation has taken less of a toll on American Muslims who follow age-old Islamic laws." The money quote can be found in the third paragraph:
"If everybody was Shari'a-compliant, there would be no recession," said Farouk Fakira, a Yemeni immigrant who moderated a discussion on Islamic finance [in Sacramento].
The next eighteen paragraphs feature not a single voice to scrutinize this stunningly saccharine assessment and not a single hint of Islamic banking's many troublesome aspects: that unaccountable clerics determine which arrangements are Shari'a-compliant; that charitable donations required to "purify" proceeds have been used to fund terror in the past and could leave investors legally liable for attacks in the future; or that Shari'a banking is a modern invention designed by Islamist thinkers to propagate their radical, separatist ideology.
Yet there is hope for journalism, as demonstrated by an April 22 piece in the Houston Chronicle. After beginning with a similarly positive portrait of Islamic mortgages, reporter Lindsay Wise turns over the stage to economics professor and Shari'a finance critic Mahmoud Amin El-Gamal, who refers to them as "smoke and mirrors":
El-Gamal believes Islamic mortgages are "grossly inefficient replications" of conventional mortgages with more legal and tax risks. The structure has not been tested in bankruptcy court, he said, and the Internal Revenue Service has yet to rule whether the "rental fees" are a legitimate tax deduction, so buyers could expose themselves to the risk of being audited.
"It's a whole new transaction that did not exist in ancient times," El-Gamal said.
Not only does Wise's article, through El-Gamal, cite two dusty corners of Shari'a finance — its recent provenance and its byzantine mechanisms to circumvent the ban on interest — but it also raises less circulated points: Do arrangements meant to replace interest qualify for interest deductions under U.S. tax law? Are recipients even informed about this question?
Thank you, Lindsay Wise, for venturing where so many of your colleagues dare not tread: to the other side of the story.